AUD/JPY loses traction below 97.50 amid the weaker Australian employment data

• AUD/JPY faces some selling pressure near 97.43 following the downbeat Australian employment data. 
• The Australian Unemployment Rate rose to 4.1%, the highest since January 2022. 
• Japan's economy entered a technical recession after shrinking in the fourth quarter (Q4) of 2023. 

The AUD/JPY cross loses momentum during the early European trading hours on Thursday. The downtick of the cross is supported by surprisingly weak Australian January employment data. AUD/JPY currently trades around 97.43, down 0.33% on the day. 

The Australian Unemployment Rate rose to a two-year high, coming in at 4.1% in January from the previous reading of 3.9%, worse than the market expectation of 4.0%. The report suggested that the labor market was loosening in the face of a faltering economy and poor consumer demand, according to the Australian Bureau of Statistics (ABS) on Thursday. Meanwhile, the Australian Employment Change arrived at 0.5K in January versus -65.1K prior, below the market consensus of 30.0K. 

This report has spurred speculation that the Australian central bank may adopt a dovish stance in response to the weakening economy, which exerts some selling pressure on the Aussie (AUD). The Reserve Bank of Australia (RBA) Governor Michele Bullock said on Thursday that RBA is in a good position to get inflation down in a reasonable amount of time. 

On the other hand, Japan's economy entered a technical recession after shrinking again in the fourth quarter of 2023, according to preliminary data released from Japan’s Cabinet Office on Thursday. The GDP growth number contracted 0.1% QoQ in Q4 from a revised 0.8% contraction in the third quarter. This figure came in weaker than expectations of 0.3% expansion. Furthermore, the Annualized GDP contracted 0.4% YoY in Q4 versus the 1.4% expansion expected and 3.3% contraction prior.

Investors anticipate the Bank of Japan (BoJ) to abandon its negative interest rate regime at its April policy meeting, once the annual spring wage negotiations confirm a trend of considerable wage growth. However, the downbeat GDP report on Thursday implies that rising inflation threatens domestic demand and potentially supports the case for looser monetary policy for much longer.

In the absence of the top-tier economic data release from the Australian and Japanese docket later this week, the risk sentiment could drive the markets and influence the AUD/JPY cross.